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Matias Järnefelt: Hello, everyone, and welcome to Harvia's Q3 2026 earnings webcast. My name is Matias Järnefelt. I am the CEO of the company, and with me I have Ari Vesterinen, our Chief Financial Officer.
Ari Vesterinen: Hello.
Matias Järnefelt: Today we have the normal agenda. I will start by first covering the key numbers and highlights of the Q3 business and financial performance. I will also say a few comments about our strategy implementation. After my part, Ari Vesterinen will be commenting more in detail the financial performance and the details of it. Let us get started. Starting with the top line, Harvia's revenue increased by 17% to EUR 53.9 million during the quarter, and all of this growth was organic. All of the regions contributed to revenue growth, growing double digit. This growth was supported in part by approximately EUR 4 million of postponed deliveries from Q2 to Q3 due to a major IT infrastructure and process upgrade program that we completed in our main factory and headquarters in Muurame, Finland, during the second quarter.
Matias Järnefelt: Overall, when we look at the markets, we see the demand picture looks strong. It looks strong in North America, and also we see steady improving picture in Europe, and many markets in APAC and Middle East and Africa. Although the exception is that the ongoing conflict in the Middle East seems to impact the Gulf region and also the wider region around it. Looking at the bottom line, our adjusted operating profit was EUR 9.5 million, and that represents 17.7% of revenue. When we look at the P&L, first starting with the gross margin, it remained on a healthy level close to our longer term average gross margins. On the other hand, profitability was somewhat negatively pressed by elevated personal cost, other operating expenses, and also somewhat higher depreciations that reflect our past investment in developing the business.
Matias Järnefelt: And of course, the current OPEX reflects in part our intent to invest in making this company stronger for the future. What comes to, for example, increasing firepower in marketing, firepower in R&D to make sure that we have the leading products in the market. I will be talking a little bit about the innovation we introduced during the quarter, later in this presentation. There is also a kind of one-time accounting adjustment that concerns region North America, both in terms of revenue and adjusted operating profit. That reduces on group level our operating profit by around EUR 800,000 and revenue by around EUR 700,000. I am very happy to report that the process and IT systems upgrading in our main factory in Muurame was completed successfully.
Matias Järnefelt: The actual goal happened during Q2, but due to that change, we had some weeks of not delivering during Q2. We have been catching up those postponed deliveries during Q3 in full. That reflects that we are back in full speed, full capacity in our main manufacturing facility. We have also continued investments for growth elsewhere, including we have been expanding our factory in North America to support growth for the future years. Basically this expansion will be supporting us already now during this kind of just about to start winter season. That traditionally in the sauna market is the high season of the year. We have also finalized the development of several new products, and I said I will be talking about this a little bit later.
Matias Järnefelt: I think that the demand picture that we see generally all over the world is despite the geopolitical and macroeconomic uncertainty, discussions about higher interest rates, consumer confidence, et cetera, actually we are quite encouraged by the steady picture. I think it reflects the resiliency and the strength of the demand drivers to the category that we represent. Sauna, wellness, and health in a relaxing and pleasant way is a story that resonates all over the world. I am personally convinced that the future for the market and Harvia is bright. Now then, summarizing the Q3 key figures, revenue at EUR 53.9 million, and that is 17% growth compared to the quarter year before. At comparable exchange rates, we grew by 16.2%. All of this organic, as mentioned.
Matias Järnefelt: Adjusted operating profit, EUR 9.5 million, and that is around 8% more than the quarter year before and equaling 17.7% of operating profit margin. Operating free cash flow in our business, typically is always lowest during Q3. The reason is that we are just about ramping up for the high selling winter season. That means that we manufacture a significant amount of products for finished good inventory, so that when the key selling season in the winter, including campaigns around Black Friday, Cyber Monday, et cetera, we have the firepower, the kind of inventory that allows us to grow also during the high selling season. So that is reflected in the operating free cash flow. For the first nine months of the year, these are the figures. Revenue at EUR 165 million, and that is around 14% growth. At comparable exchange rate, around 16% growth, all organic.
Matias Järnefelt: Adjusted operating profit, EUR 31 million, that is around 8% more than during the nine first months of the past year. Year to date, our operating profit margin is at 18.7%. Operating free cash flow at around EUR 50 million, cash conversion at around EUR 40 million. When we look at the regional picture, it is very pleasing to see that all the regions grew double digit. This time, the fastest growing region is Northern Europe, growing by over 20%, North America grew by 18% in euros. This region was impacted by the accounting adjustment, without it, would have been also 20% growth region for us. Northern Europe, as I said, grew by 23.5% to EUR 13.7 million, representing one quarter of group total revenue.
Matias Järnefelt: We saw positive development across the geography, including Harvia's home market, Finland, Scandinavia, and the Baltic region. The performance was supported by the deliveries that were postponed from Q2 to Q3, as the region is heavily skewed towards the heating business in terms of the portfolio mix we sell. At the same time, it is also fair to note that Northern Europe, that had very difficult years 2022, 2023, 2024, and even H1 2025, for the past bit over a year, has shown actually strong performance. If you look at the, with the exception of Q2, which was impacted by these delivery delays, but then account back this sort of 20%-plus growth during this quarter. We talk about double-digit growth during this period, actually in a very steady way.
Matias Järnefelt: That is an encouraging sign for us also that our home region does provide growth opportunities for us. Continental Europe grew by 12% to EUR 14.1 million and represents 26% of the total revenue. Continental Europe has been growing now for several years, pretty much usually between 5% to 10%, this 12% is a bit on the higher side compared to that sort of longer term trend, but as said, boosted by heater deliveries, some of which would have normally happened during Q2 and happened now in Q3. When we look at the country picture, there are always some countries a little bit up, some countries a little bit down. Overall, the market continued to perform strong. Maybe a couple of highlights for this quarter were the German-speaking Central Europe plus the United Kingdom.
Matias Järnefelt: North America, strong market demand continued, our multiyear journey had a logical next chapter in its history. Revenue grew by 18% to EUR 19.6 million, excluding the accounting adjustment, revenue growth was 22.5%. If you look at the left-hand side chart, you can see that it is pretty steady development. You can also take into account that Q3 in 2024 and 2025 were partly elevated due to inorganic growth. Q3 this year was fully organic growth. As I said, pretty steady line, reflecting the continued growth in interest and demand in Northern American market, that is very important for us. This, despite all discussion about consumer confidence, pending home purchases, et cetera. We are pretty pleased and believe that this shows the strength of the category overall.
Matias Järnefelt: When we look at the product mix in North America, cabins grew particularly strong. In the low end, we had the steam equipment, which is reflecting that traditional sauna category, infrared sauna category, are growing faster than the steam sauna category. APAC and Middle East grew by 12.3% to EUR 6.4 million in Q3. Again, if you look at the kind of trend over the last four years for the Q3s of each year, there is pretty logical continuation. Of course, Q3 last year was a very strong growth quarter, but otherwise it is pretty steady straight line to that EUR 6.4 million where we are in Q3 this year.
Matias Järnefelt: When we look at the geographical differences inside this region, we can see that some of the big markets that are kind of the strategic markets, where we also have stronger own presence in the market, like China, Japan, continue to perform strong. Good double-digit growth, whereas the ongoing conflict in the Gulf region is dampening the figures for the region somewhat. When we look at the product mix, due to the postponed deliveries from Q2 to Q3, which practically all of that was the heating equipment. Heating equipment in Q3 was particularly high, nearly 60% of our revenue. Otherwise it is pretty steady, but due to the kind of increasing share of heating equipment, then each of the other categories was pretty much like -1 percentage point or pretty much flat. So no major shifts there.
Matias Järnefelt: Looking at the growth across product groups, we can see that heating equipment was the growth leader, growing over 20%, boosted by the Muurame production ramp-up and kind of fulfilling the order backlog. Saunas and Scandinavian hot tubs growing good double-digit number. Steam products growing, but only a little. This reflects the fact that our steam business is basically based in two regions. One is Middle East, where the conflict is having its toll on our business, and partly that in North America, which is the other region, steam category is growing slower than the traditional infrared sauna categories. A few words about Harvia strategy. Harvia is the market leader in a category that has in the past been what I would call a niche market, maybe more regional market, but now growing into much broader global wellness segment.
Matias Järnefelt: The strategy that we have chosen to take is that we want to be a market leader in offensive, inspiring, innovating, taking the market forward. We want to be the company that shapes this global sauna market so that everyone has a reason to experience sauna. We are driving forward that strategy through what we call four strategic focus areas, answering questions what, where, to whom, and how. What relates to our products and portfolio, and we want to be the product and portfolio leader of the business and deliver a fuller sauna experience to each sauna built to tap into a bigger spend potential as sauna market and more saunas are being built.
Matias Järnefelt: Where we are, last year we were around EUR 200 million company playing the global market, so we also have to make choices that which are the most important strategic countries where the future of this market, sauna business leadership is defined and decided. We focus most of our efforts there. It is countries like the United States, big European countries like Germany, United Kingdom, and big Asian countries like Japan and China. Elsewhere, we also want to capture opportunities, but mainly through distributor partnerships. To whom is that we want to be also having the leading sales channel, so access to the market, best retail partners, best distributors, best country importers in, for example, Asia, and strong own D2C. How relates to the fact that we are a growth company. Every year we need to produce quite much more products to sell to keep growing.
Matias Järnefelt: We want to have efficiency, scalability, and capacity to grow and grow in a profitable way, including then the competencies and skills that we need to take this business forward. During this quarter, we have taken again many good steps on that journey. When we look at the products and portfolio, we had strong performance in full sauna cabin business in North America. Heating equipment, which is Harvia's core, grew very much. Also, of course, boosted by postponed deliveries, but overall, the demand picture for the core business stays strong. We have also been working behind the scenes on building more exciting products to our portfolio, and they are launch during this ongoing Q4 and also during Q1 next year. I will show next slide some highlights from there.
Matias Järnefelt: Winning in the strategic important markets across the board, I am very happy to see that the markets where we have stronger own presence, they are performing really well. We generally talk about double-digit growth as the rule. As we keep growing, one part of our strategy is that we take more and more countries under our own sales responsibility, so expand our own commercial footprint in the regions to support our continued growth. Leading in the key channels, when I am looking at our key channels like mass volume retailers, our own D2C, specialty dealers, importer partners, the growth we reported this year is coming very broadly and all of the key channels were growing.
Matias Järnefelt: I think we have also laid out great groundworks in developing the channel access in a sustainable long-term way that will help us deliver hopefully strong results also in the coming years and quarters. Gross margin stayed as said on a healthy level, supported by balanced product mix, channel mix, and also pricing management. One core part of Harvia strategic thinking is that let us do more of what works and let us do less of what does not work. One of the things that seems to be working really well is direct-to-consumer web stores that have been helping us to grow significantly in North America. Earlier this year, we launched a direct-to-consumer web store for the German-speaking Central Europe.
Matias Järnefelt: As we have started to kind of approach the high-selling winter season, we really see very rapid uptake in the incoming orders, that is of course, very pleasing to see as we have been kind of working on building that new channel for our channel mix in Continental Europe. In terms of best-in-class operations and great people, this kind of a milestone of go live with the new IT infrastructure and processes was a major undertaking for us. Always also these projects come with elevated risk because they are so big changes. I am so happy that I can now report that after Q3, we are back in fully kind of normal operational levels and our delivery capability is good.
Matias Järnefelt: That is of course very important for us as we now have just started the high-selling Q4, high-selling Q1. Typically, as said historically, these are the big quarters. So it is very important that the operational engine is in good shape, and it is. We have also been investing in expanding our capacity elsewhere, such as expanding our factory in Lewisburg, West Virginia, which will be supporting our growth ambitions also this winter in United States.
Matias Järnefelt: Overall, what we want to do is we want to grow, and we want to build scalability in our business so that we can see operational leverage coming through as we keep growing, and also strengthen operational resilience, and also transparency for better business steering and efficiency across all functions, and that work is progressing well. I promised to say a few words about the new products, and here are some products that we have now launched for this winter season. Kaski Cube View sauna cabin on the left-hand side is part of our goal of growing our traditional sauna cabin business, not only in North America, but also in the continental Europe. So a really nice pod-type form factor, full glass front wall and door.
Matias Järnefelt: Very much something that the early feedback from the market is that this product has all it takes to be a very successful product in the continental European market. One of the most successful product launches we have done over the past couple of years is the launch of Harvia Fenix control unit, which is our flagship full-touch control panel, over-the-air upgradable. Really taking Harvia into the leading position when it comes to digital solutions for sauna and spa. With a new Harvia Cinder, we have taken that Harvia Fenix product that the market loves and actually brought it to a lower price point. As I would say, price fighter in this full-touch category. Really exciting product. We really want to elevate the experience also in the more entry-level of sauna products, and we feel that this is a great step forward.
Matias Järnefelt: In terms of pricing, it is very attractive. At the same time, it is margin-wise, a very good product for Harvia. We also drive digital leadership elsewhere. One of the examples is that you can actually control selected Harvia saunas. For example, when you have Harvia Fenix control unit, you can control your sauna. Nowadays, not only with your phone, but even with your Apple smartwatch, showing the opportunity to integrate into other digital ecosystems and use them to enhance the sauna experience of the Harvia sauna users. For EOS, which is our high-end brand, the home is in Frankfurt, or close to Frankfurt, in Germany. One of the most loved products is a product called EOS Mythos, and it has now been upgraded with a very nice, luxurious new surface material, what we call water reflection.
Matias Järnefelt: The steel is bending in a natural way that mimics, when the light reflects back from it, the reflections that you would see on the surface of a lake. Very beautiful when you see that live, and creating a luxurious feeling in the sauna where EOS Mythos is heating the sauna. I would hand over to Ari for the financial details.
Ari Vesterinen: Okay. Here we see multiple quarters over the time. Of course, analysts especially are asking, "What was that adjustment in Q3?" Okay, there are always, in accounting, some adjustments, smaller or bigger, but we have certain internal threshold when we have a bigger adjustment, then we seriously think that if we should flag that in the reporting, and now we did it. It is simply a matter of revenue recognition of certain big-box mover sales from the beginning of this year, and also the cost recognition of big box and web shop sales. We booked it, and we wanted to highlight it that this was needed, and it is not an extraordinary position. It belongs to normal business. It was done now in Q3, and I am not expecting similar adjustments in next quarter or so. This is the fact.
Ari Vesterinen: If we now compare Q3 with Q3 in 2025, and if we look at Q3 now isolated from the other quarters and calculate back the adjustments we had, EUR 700,000 to the net sales and EUR 800,000 to the EBIT. We were actually on the adjusted EBIT level of EUR 10.3 million, and with the net sales of some EUR 54.6 million. So that would have meant, okay, this is just a calculation. Anyhow, that we had an adjusted EBIT of 18.9% during Q3. It is actually very close to Q3, what we had a year ago. Of course, people are asking that, "Hey, what about the operational leverage? Now you had higher sales and basically quite close to the same cost base.
Ari Vesterinen: Why didn't you make any higher margins? The fact is that during this quarter, we have been also developing the business further. We have, during this, attended multiple international trade shows. We have had more marketing and business development costs during Q3 than a year ago, substantially more. Also, the depreciations increased. It is visible in our reports, about EUR 400,000 compared to last year. All these items cause the reduction of the EBIT level percentage somewhat. Here we see the main financial figures. If we would have had, this is a bit theory, but anyhow, the adjusted operating profit on the level of EUR 10.3 million, it would have had the 17% growth in adjusted EBIT also as the sales growth now. Okay, we have had a rather good quarter.
Ari Vesterinen: We have been preparing for the rest of the year and for the higher winter season, since Q3 is typically, in our business, the lowest sales quarter at all. We got the boost from Q2 to Q3, about EUR 4 million deliveries from Finland. Now they are in the books, but we were also growing nicely without that effect. We have been employing new colleagues especially in the production facilities, but also, developing the US operations in customer service, in sales, in many fields, since we really see there the further growth to come. Otherwise, there is nothing very special in these financial figures in the big picture. The operating free cash flow, as Matias mentioned, it goes down typically in Q3 and then pops up, has done that in the past during Q4 when we ship and invoice the inventories.
Ari Vesterinen: This has been the pattern multiple years backwards. Now we had a slightly less negative cash flow than a year ago in Q3. The leverage remained on a healthy level of 1.2. A year ago, we had 1.4, and this is much under our long-term financial targets. The net financial items, net of interest income and costs, went slightly down. We have certain swap agreements which on paper, in IFRS accounting, might change this position a little, but they didn't have so big impact now in Q3 at all. We have continued the investments in facilities, product development and IT infrastructure. Now in Q3, the investments were not as high as a year ago. A year ago in Q3, we had EUR 2.2 million higher investments. We are looking forward to have the investment in US closed for the expansion of the production facility.
Ari Vesterinen: Besides that, we have also rented other warehouse capacity since we have been very strongly now producing for the Q4 campaigns during the Q3, and that's not really visible in the results yet. Harvia's long-term financial targets, just to repeat, we have them the same as in the past: two-digit growth, profitability, adjusted operating profit over 20%, leverage under 2.5. Harvia pays twice a year the increasing dividends. The last dividend payment, the second from 2025 results, was actually paid out in the beginning of this week. This week. Any questions? I have got here quite many questions in this tool, and let's start to go them through. First, quite US related question, or US citizen. What's the impact of inflationary pressure on the gross margin you haven't been able to pass along yet? We have been able to pass it.
Matias Järnefelt: Yeah. I did comment a little bit during my presentation that maybe this question was sent before I made those comments. There has of course been a lot of talk in the financial press about what happens generally in the stock market, the AI stock crash somewhat, and increased interest rates, consumer confidence, pending home purchases, et cetera. Despite all of this, we actually see a pretty bright picture for our category. I think there are basically two aspects to it. One is we have strong reason to buy our product. People really love this idea of having wellness and health in a relaxing way. That is basically the value proposition of sauna. It is a kind of ancient wellness ritual that is backed by modern science.
Matias Järnefelt: The second is that the market, we are still in so early phases, so maybe the situation would be different if there would be, let us say, 50% of American households would have already a sauna, but we talk about a tiny fraction of the American homeowners owning a sauna. So we are still in the very early stage of the adoption curve. Also, if you think about just the affordability of the product, you can go and buy, say, a $3,000 sauna from Costco made by Almost Heaven, i.e., Harvia, so it is not so expensive a product either. So there are many households who have the interest and definitely have the means, as the actual barrier to buy is pretty low, the price point is accessible, the buying process is easy.
Matias Järnefelt: It is a pretty easy, rewarding assemble yourself project that you can do with yourself and a friend in less than a day. So we see pretty solid demand in North America for the category, and I am very pleased about that.
Ari Vesterinen: Then there are a couple of questions we have not ever asked so detailed, but I asked them, and I answered, Teddy, and I asked them anyhow, and you can comment them on a general level. What has been the sales decline in the Middle East?
Matias Järnefelt: Generally speaking, if you look at the Middle Eastern region, it represents around 2% of Harvia Group's total revenue. Last year, it was pretty much around EUR 4 million or so. What we have said is that roughly half of that is at risk during this year because of the ongoing crisis.
Ari Vesterinen: What was the growth rate for ThermaSol in Q3?
Matias Järnefelt: We do not go into unit-based growth numbers, so we report the growth on the region level and also then, of course, product category level. I have noted this earlier. You should not be looking at just the steam category to draw too far-fetching conclusions about one particular unit in North America, because I said Middle East plays a big part in the steam category. Also, we are leveraging ThermaSol beyond the steam category as a sales channel to access higher-end sauna solutions business. ThermaSol's channel is to what I would call high-end home spas, and there is great opportunities for us to provide a broader portfolio of Harvia Group through the sales channel, which is then not visible in the steam figure.
Ari Vesterinen: Good. Your hiring trends suggest strong line of sight on the high selling season. Thus, is not Q3 2026 just a reflection of the timing of the growth expenses and confidence in the top line growth? In Q3 2025, if I remember well, you were more cautious on the same OPEX as the tariff situation negatively impacted your Q2 performance. So Q3 last year was, say, too strong on the margin side.
Matias Järnefelt: Well-
Ari Vesterinen: Comment and question.
Matias Järnefelt: Well, maybe a comment here would be that basically the strategic position that we see for Harvia is that we are a global market leader in a growing category, and we want to be leading also in the future. There are, of course, two strategies that you can play. One is an offensive strategy, playing to win, and the other one is conservative strategy, avoiding losing. I am in the camp that if you are basically building a growth business, there is certain risk you have to take, and basically, aggressiveness, a bit pushing the limits is kind of a prerequisite of executing growth strategy. That is, of course, why we have chosen this more growth-oriented strategy.
Matias Järnefelt: If you look at, for example, now year-to-date performance, we can see that we are above our long-term target when it comes to top line, but somewhat below when it comes to the EBIT margin. We have chosen this, I would say, growth-oriented strategy because we see so much opportunities in this category market in the coming years. Personally, I am in strong belief that Harvia will be a much bigger company in the future than we are today. Great thing about growth is also that it compounds, unlike what I would call profit engineering, so the profit margin. That doesn't compound, but growth does compound over time, as you very well know. So we think that this is the shareholder value maximizing approach.
Matias Järnefelt: But that, of course, comes with the downside that every now and then, maybe one or two quarters might be a bit below the long-term EBIT target setting. But as I said, it is not like quarterly target that we have set for ourselves. It is a long-term target.
Ari Vesterinen: Last month, Almost Heaven Saunas got a business award, and it was disclosed that a new investment of 5 million USD was about to get started. What is the timeline of this investment? I assume this is on top of the recently completed investments.
Matias Järnefelt: Well, maybe what I would call, maybe make a general statement. News like this should not really surprise anyone. The reason is that if you look at our growth trend in North America, over the multiple years, we have been growing very strong double-digit growth rates. Now, when we were smaller, let us say 10, 20 million US dollar business, growing 30%, 40% was in absolute terms, amount of products to manufacture fairly easy still. Just selling 3 to 5 million more next year than the year before already provided great double-digit growth. But now that last year we were close to 90 million US dollars in our Northern American business, and we still want to keep growing strong double digits, then the jumps in terms of absolute difference from the year before to the current year in terms of revenue we need to deliver get absolute much bigger.
Matias Järnefelt: I think it should be considered almost as normal that every year we do something. We have been working during this year to expand our special kind of warehousing and shipping docks capacity, which also frees up production floor space in our Lewisburg factory. That gives us certain capacity increase. But then again, we are already thinking that, what do we need to do to make sure that also the year after? So the high selling season year from now, we will have the needed capacity. The thinking is that we take the historical growth and project it to the future, and that gives us a rough indication of how much more do we need to sell, assuming that the growth trends continue. That is the way we see it. Continuous expansion in North America to be expected, assuming everything goes according to our plans and assumptions.
Matias Järnefelt: I have also commented earlier that what we have done in Lewisburg is it is now pretty much like 2 years ago, we bought a quite significant plot of land around the factory we have there making the cabins for North American markets. The first thing we did was really thinking that think big, assuming that this site will produce 5x the revenue, how would the site look like? Then we walked backwards to the present state. So what are the first bottlenecks we will be hitting? The phase that we have now completed or about to complete was addressing the first bottlenecks. There is always the next bottleneck, and we systematically keep working on the bottlenecks to keep growing the capacity in line with our longer-term expectations what we have for the market.
Ari Vesterinen: Okay. Then there is a question which was actually partly already answered during my presentation. Can you walk us through all the elements that impacted your adjusted EBIT? Were these expected or did something come as a surprise to you? Well, the costs and the plans, they were more or less in our plans. When we observe our sales deductions and revenue recognition and so forth, there are sometimes some things which have to be decided short term and effects which we didn't know necessarily all in advance, but they were not big surprises, but some anyhow.
Matias Järnefelt: Maybe also I'll comment a little bit that if you look at the gross margin that we have, and maybe if you look at the 10 last quarters, it's pretty much like on average level, but maybe I would say it could have been 1% higher. Then you look at the employee cost, it also could have been maybe 1 percentage point less in terms of share of revenue. So the same goes with the other expense. A little bit growth in depreciation that reflects our past investments. So it didn't come from one particular surprising thing. It's a bit like across the P&L stack. If we hadn't had this adjustment, it would have been practically 19 and 19 quarters. So 19% sales growth at 19% EBIT margin. So not so far from the 20%.
Matias Järnefelt: Still a bit of a miss, but not so far from the long-term targets that we've set.
Ari Vesterinen: If some of these costs were planned, do you expect a rebound in Q4 or should we extrapolate this into upcoming quarters as well? Meaning, was this cost pressure temporary or does this continue in Q4? Well, we don't go so much in the details of the accounting, but we don't expect a rebound. We don't expect the similar things, but we always inform the market if there are adjustments which go over the normal thresholds we have internally. You have added personnel since last year. Where exactly this has been and which parts of the business? We have had a year ago in this time, 728 persons and now 816. Would you like to elaborate the growth of the personnel?
Matias Järnefelt: Again, it is quite, I would say, widespread, but weighting towards North America. Of course, it is simply more blue-collar workers in the operational facilities in North America to support continued volume growth. If I take you back 2.5 years, we actually established North American sales region only 2.5 years ago, 1 January 2024. Before that, we did not have a dedicated sales or commercial approach in that geography at all. We started from a very lean team in that place, and we have made conscious choice that we increase firepower in, say, key account management and customer service, technical support, kind of marketing, et cetera.
Matias Järnefelt: Generally, we have been building a region that is more professional, more self-sustaining, an ability to carry more of the responsibility for the group even as it is becoming bigger and bigger in absolute terms, and also growing as share of revenue as part of Harvia Group. That is clearly an area where we have seen quite significant changes, but also, let us say in our Finnish Muurame factory, we have been hiring more people as we have been growing, et cetera. Some more firepower also in the global R&D, developing our digital capabilities. Quite many places where we have chosen to increase the firepower.
Ari Vesterinen: How should we think about the margin development for the full year? Year to date, adjusted EBIT margin is below 19%. Is 20% level realistic?
Matias Järnefelt: I cannot really comment on specific, because practically it would be giving, what was it, forward guidance, which is not part of our policy. I do need to leave it to. Having said that, there, of course, is a slight adjustment. Under normal circumstance, we would have been at around 19% EBIT range. If you think about the going concern or kind of normalized level of profit, as I said, it is not too far from that level. But it is clear that we would like to be, when we look at the long-term targets, very close and preferably even above them. Where we land this year, I will be sharing that in 3 months' time.
Ari Vesterinen: Did the growth in North America meet your expectations? Have you seen any changes in the market demand since Q2?
Matias Järnefelt: If I normalize the growth in North America, so kind of neutralize the effect that this accounting adjustment had because it was specific to North America, it was 22.5% growth, which is pretty good. We have had stronger growth and also some quarters with less growth. I think one of the ways I am looking at the regional performance is that actually, I mentioned this, look at the 10 past quarters, so not just what was happening in the quarter before or the year before in that particular quarter. Then you can see, interestingly, that there is pretty steady flight levels for the regions. North America, during the 10 quarters on a certain level, there is of course fluctuation, some quarters higher, some lower, but generally, you can see certain flight level.
Matias Järnefelt: The same goes for APAC region, Continental Europe, and actually the only place where we could see kind of more like a bit like a gear shift to a more positive is that Northern European region had kind of, if I am looking at past 10 quarters, kind of the early part of it was clearly lower. Now the past bit over a year have been kind of on an elevated level. But within that, there is variation, so a little bit of vibration. There seems to be, so just on observation, there seems to be a tendency that if a region was above that flight level a year ago, then it is hard to beat that baseline. We might then. It seems that in the history we have been a bit lower than after one year after a very strong quarter, and then the other way around.
Matias Järnefelt: If the quarter a year ago was a bit lower from the sort of flight level, then the probability that we have been kind of above that trend line is higher. When you look at North America like that, actually it is very logical what we delivered. Overall, kind of the long trend that we see is very strong.
Ari Vesterinen: This 20% EBIT is challenged from a different angle, but I ask this also. Can you guide us how you plan to get above 20%? To what extent is the dip driven by competition or mix?
Matias Järnefelt: Well, I think competition and mix would be visible in the gross margin. Gross margin is over 10, past 10 quarters, we are pretty much in the average, maybe 1% below, but pretty much in the average. So I think that shows the strength of our competitiveness in the marketplace. Where does the EBIT kind of dip come from? It is basic, more like discretionary spending. So what management decides in terms of personal cost in investing in digital capabilities. Of course, this major transformation program to upgrade our operational capability through technology to bring scalability has also meant that we have elevated the firepower. Ultimately, this is the board's and the management decision, kind of how much do we choose to invest in building this business for the future, and how much do we optimize for the current quarter or the next quarter.
Matias Järnefelt: As said, the margins are also pretty small. If you think about just the P&L stack, as I said, if the gross margin would have been one percentage point higher and employee and other expenses one percentage point lower, it would have been clearly above 20%, especially if we would even take into account this accounting adjustment, as said, quite clearly above 20%. So the margins are quite lean.
Ari Vesterinen: Why sales leverage was so weak in Q3 2026? Organic sales up 16% year-to-year, but adjusted EBIT only 8% year-to-year." Well, if you calculate back these adjustments, you can see this effect, but would you like to otherwise comment the Q3 EBIT levels?
Matias Järnefelt: No, I think we already discussed this. Basically, partly the OPEX level is management decision, and it reflects our confidence in the future, the fact that we believe Harvia could be much bigger in the future, and we want to be inspiring leader of this category. Partly, it reflects the adjustment. If we would neutralize that adjustment, then top line and EBIT growth would have been pretty much in sync.
Ari Vesterinen: How do you expect gross margin to develop in future as revenue mix is even more built to third-party retailing in the North America?
Matias Järnefelt: Yeah, actually it is interesting, when we look at more like a profitability of margin mix of Harvia, there are certain rules of thumb. One is that the farther away you go from Finland, the higher the gross margin levels tend to be. The simple explanation is that in Finland, sauna is almost at every home, and it is very established and mature category. Whereas elsewhere, it is an emerging category, and that supports margin levels in the further away countries. The second is when we look at the product mix, we tend to have the highest margin in what I would call the technical equipment side of our business, so the heaters, control panels, and somewhat lower in the solutions part of the business, which is the cabins. At the same time, the cabin business provides a significant opportunity to drive higher absolute profit.
Matias Järnefelt: It is very interesting for us, but still there is a bit this difference that the margin of the equipment business tends to be higher. Then there is also this channel mix, that when we sell through channel partners, and they are very valuable for us, and they provide market access for us, and some of them very significant volumes. But when we sell through partners, the margin we make tends to be lower. When we sell through our own D2C, so we basically get the full end user spend, despite that we invest more in marketing, generating traffic to our websites, et cetera, still the margin of that business is higher. There is this geographical, more like distance from Finland, then there is a product category mix, and also the channel mix between direct sales and sell-through channel.
Matias Järnefelt: It is really like a living picture, and there are many variables, and overall, the goal for us is to maintain strong gross margins because that is kind of the engine that keeps Harvia's growth machine running and allows us to keep investing in the future. It also then supports this idea that as we grow, then it will be easier for the operational leverage to come through the stack. During the past short-term history, we have decided to invest more in marketing and R&D to fill certain gaps that we have identified. But in the future, we could see that kind of the scale of the business overtakes, and we still can invest what we need to invest in marketing and product development, but actually can get more of that all the way down to the bottom line of the increased sales.
Ari Vesterinen: How did in-store sell-through trend at key North American big box retailers during Q3? Were there any timing-related factors around customer inventory stacking or replenishment that influenced the quarter as revenues in North America slowed from Q2? Looking ahead, do you have visibility on additional SKU listings in 2027 within big box retailers? Are discussions ongoing with other large format or big box retail accounts?
Matias Järnefelt: Again, I can comment maybe on the more general level. In North America, we actually tend to have very little, compared to the size of our business, very little inventories in the channel. I would say the mainstream model, how we work with our big box partners is actually they have historically not carried almost any inventory. We are kind of their drop shipment partner. They sell a market and then take the order, and we ship directly to their end user, the consumer. So there has been very little in the channel.
Matias Järnefelt: Now, that has changed somewhat during this year, as many of you know, that we have partners that have now started to take also kind of goods into the regional warehouses and also in the stores, as they also see that the category is growing and they want to be able to serve quickly the American consumer, kind of in a sense, have a truck and we can load the sauna to your truck bed straight away. But still, in the big scheme of things, those inventories are fairly low. Hopefully, they will be growing. That of course reflects that we have then a longer-term history of the store sell-out. But all in all, the partnerships work very well. The partners seem to be very happy with the contribution by Harvia and how we have been able to grow together.
Matias Järnefelt: Now, of course, there is always the so-called channel concentration risk when you have certain kind of big partners, and we want to have a balanced channel landscape. That includes, for example, having strong own direct-to-consumer, but playing in product categories and playing with strengths that do not conflict the kind of big retail partners that we have. At the same time, we want to have a balanced mix of retail partners, not just be dependent on one or two or a few, but kind of rather healthy ecosystems. The work happens every day. Happens every day, and I am pretty pleased with the steps we are taking.
Ari Vesterinen: Can we comment on the SKU listings for 2027?
Matias Järnefelt: The SKU listings, I would not go into the exact details, but when you look at historically, every year there is something new. Partly it is a new product, like maybe price point or form factor introduction. Partly we are renewing the portfolio. One of the reasons why we renew the portfolio, kind of ongoing portfolio, is we do also ongoing cost engineering because we want to make sure that the partners always have great offers to the market and kind of what was good enough a year ago might not be good enough this year, let alone next year. So there is ongoing, I would say, gross margin engineering, also ongoing innovations, et cetera. Practically, you can assume that every year we have new listings and some of the old ones drop out.
Ari Vesterinen: The Lewisburg expansion was completed in September. Well, there is still some work to do, but this is the question. Completed in September, how close to full utilization was the facility by the end of Q3, and how much capacity remains to support near-term growth? At what point do you expect to start evaluating the next phase of capacity expansion?
Matias Järnefelt: Maybe a few words. Despite the fact that we grew by 22.5% in North America, cabin business was actually strongly contributing to that growth. We have also been building in Lewisburg factory, finished good inventory for the winter selling season. That already should give you comfort that we have the firepower it takes to keep growing also during the high selling season. I already answered in a previous question that practically we are looking at the base plan for our capacity planning is that how much we have been growing on average over kind of multiple years in North America and expecting that to continue, and that gives us a baseline of how much capacity do we need to prepare for the coming years.
Matias Järnefelt: Once this is completed, we will start working on the next one pretty much straight away to make sure that a year from now we have the capacity we need to grow and keep growing in strong double digits, assuming that we are successful in demand generation.
Ari Vesterinen: How did steam product revenue develop in North America? Could you provide an update of the action plan and the underlying drivers of the performance?
Ari Vesterinen: Are you still expecting growth trends to improve by year-end as indicated earlier?
Matias Järnefelt: Mm-hmm. Yeah. Steam as a category looks better now than in Q2, so that should also give you some comfort, despite the fact that the Persian Gulf situation has continued even today. That should give you some comfort. Partly the softness in the steam category, which jumped to North America and omit the Middle East situation. When we look at the different sauna types in the world, traditional sauna, infrared, and steam sauna, we can see that traditional infrared are the fastest-growing categories, and steam as a category grows a little bit less. Then the second, which is something I've already commented earlier, there are also opportunities for us to sharpen our own game, including channel management, account management, and things related to product competitiveness.
Matias Järnefelt: At some point in time, I've said that we had this sort of 40-point action point list that we are implementing, executing with the aim of accelerating our steam performance in North America. Many of the steps have been taken, and I am positively viewing the future and hoping that we will be able to see even better figures then going forward.
Ari Vesterinen: What kind of growth did you have in your own sales channel in North America?
Matias Järnefelt: We do not go into the specific numbers, but strong growth. D2C has been one of the leading growth channels for us for many years already in North America. Strategically, it is very important for us because it allows us to control the consumer experience. We can present what I would call the full power of Harvia there. You would imagine going to a particular reseller, they have actually very limited offering from what I would call the full power of Harvia. So the broader offering that we can serve. It is the experience we can fully control. Also we get a higher share of the end user spend. This is something we want to grow, but we want to grow it in a balanced way.
Matias Järnefelt: And that is why we have internally a commercial go-to-market strategy that I would summarize, right product to right channel at right price. We have some of the big box movers that we allow to shine with price, with standard product. Our own kind of D2C, it is still about volume products, but with options. If you want to have, for example, full glass back window, WiFi controlled heater, maybe a cabin painted in black, et cetera, then the best place to buy it is our own website. Then there is also a great offering that allows the more like specialty dealers who sell more premium solutions to shine in their segment. Each channel has a role to play, and we want to have a synergistic multi-channel strategy rather than cannibalistic, where we would be competing with price, with standard products against our own biggest partners.
Matias Järnefelt: This is not the way we see kind of the successful commercial execution. It is instead what I just explained, that each of the channel has a role to play and each of the channel add value to our numbers and add value to Harvia brand and market share.
Ari Vesterinen: Do you see the IT infrastructure and business process upgrade project having a positive effect on profitability?
Matias Järnefelt: I think in the future, it will be supporting us. In the short term, it has been actually dampening it. Basically, it is a major undertaking. We have had consultants supporting us, et cetera. It is mainly a cloud-based service, so a lot of the costs relate to even getting it going, and we have booked in the P&L as operating expenses. It has been actually an activity that has been dampening the shorter-term numbers. At the same time, where we are now, we are back to full capacity. In the coming quarters and coming years, we will be working to make sure we get the return on investment, which is more scalability, more efficiency, more automation, and better utilization of, for example, AI, as a booster for productivity in our key business processes.
Ari Vesterinen: Okay. You spoke to the overall health and wellness sector growing and how Harvia is transitioning from a niche sauna-only brand to a holistic solution provider to capitalize on this trend. How does your segment channel approach into B2B projects, especially hospitality and more tailored health and wellness destinations, play a role for growth as opposed to B2C segment? Does this specifically mean adapting your commercial team to better control the winning of such projects?
Matias Järnefelt: I actually had a very interesting discussion with one of Harvia's long-standing management team members around a week ago, and we talked about that there is roughly 18 million saunas in the world, give and take, and around approximately 100 million people who go to saunas. So 5x more people who go to saunas versus how many saunas there are. The difference obviously is explained by commercial and public saunas, so saunas in hotels, spas, fitness clubs, et cetera. We look at the commercial applications from 2 angles. One is what is the direct business opportunity provide.
Matias Järnefelt: Being leader of what I would call professional-grade equipment, we do not deliver full solutions like we do for the residential space, mainly because we can create the full solution for residential user in our factory, so the sauna cabin plus the heating and control technology to go with it, and it is easy to ship to consumer. Whereas in commercial space, a lot of the value, in many cases, is actually on-site work, custom installations, custom building, tiling, wood paneling of the custom saunas. There we can tap into more the equipment business. So when we look at the commercial applications, it is mainly heavy-duty professional-grade equipment that we sell. It is actually a meaningful opportunity for us.
Matias Järnefelt: But in the order of magnitude, clearly smaller than the consumer opportunity for us worldwide, because we can have Harvia saunas and cabins in tens of millions of saunas in the world over a long period of time. But it is also not just the business opportunity directly, but also brand impact. Because if you think about 100 million people go to sauna, what brand should they see there? They should see Harvia, because then Harvia is the brand that also the professionals choose. So actually, the commercial does play an important part of our portfolio and go to market, while revenue-wise, it is a smaller part of Harvia, so we are mainly a consumer company from the revenue split, kind of the types of products we make.
Matias Järnefelt: But it does support us significantly as we build Harvia into the category-leading global consumer brand because consumers see our brand then in the public spas and saunas. So hopefully, that sort of opens how we look at the commercial and the short answer is yes, we are interested in playing there. We have a commercial sales approach as well and continue to do so.
Ari Vesterinen: Back to the numbers. Do you expect a visible negative impact to your material margin from the campaigns in Q4?
Matias Järnefelt: Well, again, maybe that would be a bit of a forward guidance, but overall, we want to make sure that all business we do gives us healthy margin. And I said, sometimes the margin of error is pretty small, especially when we talk about big volumes and, I would say, tightly priced entry-level products. But the key takeaway from my answer should be that all big parts of Harvia's business should contribute to us being able to hit our long-term EBIT margin goal of 20%.
Ari Vesterinen: How much are you investing in digital product development? What are the current and/or projected returns from digital products?
Matias Järnefelt: Well, digital is very interesting, and especially now we talk about digital products and digital solutions. Digital, of course, is very big. If you think about the AI strategy of Harvia, it goes across the company. It is about operational, it is about enhancing sales. It is AI as part of the solutions. Digital is the same. Digital really cuts across the company. But when we specifically look at the product side of it, digital for the next 5 years mostly plays a role that actually helps us sell our core product. You can see here, for example, is a new Harvia Cinder control panel. I said one of the best-selling product launches for us during the past couple of years has been Harvia Fenix, which is kind of the digital interface in your sauna.
Matias Järnefelt: It starts to be almost like a basic requirement to compete that you have to have much more advanced digital capability, remote control, software upgrades, et cetera, in the sauna control systems. The times have changed, and for us to be able to be competitive and exciting with our core products, they have to have a strong digital offering. At the same time, we are building an installed base of connected Harvia users, and I see a future where at some point in time we will have tens of millions of people as connected Harvia users. Once we get there, of course, it provides very interesting opportunities for various business models and serving their customer base. Starting from easy upgrades, replacement sales. We want to have also a stronger recurring revenue logic in our business, and digital can help in that way. Also, again, digital services, digital content.
Matias Järnefelt: It is very important for us, but in the short term, it is mainly about competitiveness of our core product. In the longer term, it could really provide a very nice, very high margin upside to our business.
Ari Vesterinen: Thank you very much for your questions. There were also a few other questions which actually treated the same topics we were already answering. I skipped them, and if there is any need for future discussion with the analysts and investors, we are of course available. We have to just check the schedule. We are also active in road shows. We want to spread our investment story and explain the business also to the international investors. Thank you for following us.
Matias Järnefelt: Thank you very much, and have a good day.
